In: Finance
Ferry's Furniture Outlet has an accounts receivable period of 51.06 days and an accounts payable period of 43.07 days. The company turns over its inventory 5.69 times per year. What is the length of the company's operating cycle? Assume 365 days per year.
94.13 days
72.14 days
21.08 days
115.21 days
107.22 days
The formula for computing the operating cycle is:
Operating cycle= Inventory period+ Receivables collection period
The receivables collection period is already given. So, the question is solved by first calculating the inventory period. Inventory period is calculated using the below formula:
Days of inventory = 365/ Inventory turnover
= 365/ 5.69
= 64.15 days
Operating cycle= 64.15 days + 51.06 days
= 115.2076 days
Therefore, the operating cycle is 115.21 days.
Hence, the answer is option d.
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